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The Inner Game

I recently met with a wealth management team composed of three senior partners, two support staffers and one intern. They manage over $300 million in assets, and although they have culled their client list, they still have too many low-end clients: 200 of their households represents less than $10 million in assets. What's more, the group added only five new affluent clients last year. And so they

I recently met with a wealth management team composed of three senior partners, two support staffers and one intern. They manage over $300 million in assets, and although they have culled their client list, they still have too many low-end clients: 200 of their households represents less than $10 million in assets. What's more, the group added only five new affluent clients last year. And so they came to talk to me about rainmaking.

The team members had done their homework. Each had a list of prospects who were linked to an existing affluent client's center of influence. Their thinking was that with a little coaching, each partner could bring aboard 10 new affluent clients. They had done some simple math: 30 new $1 million (plus) relationships would bring in approximately $35 million in assets, and a 1 percent fee on those assets would generate an additional $350,000 of revenue. I liked their thinking.

Still, identifying prospects and calculating their potential winnings was only half the job. After a brief discussion, I learned the team lost four good clients last year. As I drilled down to why, it became apparent that there were gaps in the service-loyalty-revenue nexus. Let me explain: High-level service creates loyal clients, and loyal clients directly impact revenue.

This nexus becomes even more critical when you consider that each of these affluent clients represents a cost-benefit ratio of $280,000 (details on this later) for a sum total of $1.12 million. Before we get back to the cost-benefit math, let's define the service-loyalty-revenue nexus:

Service: The affluent measure service against the Ritz Carlton standard, and to deliver at that level you need to have satisfied and loyal personnel. And yet our research shows that only 17 percent of teams have developed the internal loyalty necessary to deliver such outstanding service. So, pay attention to the following factors, which can have a direct impact on the loyalty of your firm's personnel:

Work environment

Wealth management services

Personnel

Kaizen (concept of ongoing business improvement)

Compensation

Growth curve

Loyalty (Affluent Clients): Once you have developed the loyalty of your team members, you can focus your energy on developing the loyalty of clients, something that must be earned over time. Our research has identified seven criteria that impact affluent loyalty:

Resolving problems quickly, and to client satisfaction.

Meeting investment performance expectations.

Clearly understanding the client's situation when giving advice.

Notifying client of events that impact his/her portfolio.

Caring about the client as a person, as opposed to caring only about his investments.

Helping the client create and execute a financial plan.

Maintaining a high frequency of personal contact.

Revenue (Cost-Benefit Ratio): Loyal affluent clients are your acre of diamonds if you are able to access their centers of influence. As you know, word-of-mouth influence is the primary method the affluent use to make major purchase decisions — like who will coordinate their family's financial affairs. Our research and experience tell us that each loyal affluent client should help you acquire six similar clients over the lifetime of your professional relationship.

Now, let's take a closer look at the math behind the cost-benefit ratio I shared with these partners. To keep things simple, let's assume each client with $1 million in assets pays an annual 1-percent fee on assets. Over a seven-year period, this client represents revenue of $70,000. But if we assume this client helps you acquire one new affluent client a year (with the same $1 million profile) starting in the second year of the client relationship, that revenue number soars:

Initial Affluent Client – 7 years at $10,000 a year = $70,000

Year 2 one new affluent client – 6 years at $10,000 a year = $60,000

Year 3 one new affluent client – 5 years at $10,000 a year = $50,000

Year 4 = $40,000

Year 4 = $30,000

Year 6 = $20,000

Year 7 = $10,000

Total Affluent Client Cost-Benefit = $280,000

Needless to say, my numbers ($280,000 × 4 lost clients = $1.2 million) got the attention of the partners. And it's no surprise. Many advisors have a similar blind spot to this service-loyalty-revenue nexus, and thus don't leverage their clients' centers of influence. In this market, the service-loyalty-revenue nexus is not something you can ignore.